Question

1. Under the same demand curve and marginal cost, which of the following model is the most profitable for firms? Choose one and provide your reasons.

1. Bertrand competition.
2. Cournot competition.
3. Perfect competition.
4. Each model ensures the same profit.

Answer 1

In Bertrand and Perfect competition, we know that at equilibrium, P = MC. So, the profits of each firm are zero.

However, in Cournot Game, the firms earn positive economic profit and the firms play a simultaneous game between each other. With the homogenous cost, the quantities produced by them are equal and the profits are positive. So, it is the Cournot Model which is most profitable for the firms out of the choices given.

Option 2nd Cournot Competition is the correct choice